Bridging loans might be becoming more popular, however, a recent survey shows that many homeowners have never heard of them.
Almost one in five who were questioned said they had no idea that the loans existed and of those that had heard of them, 13% did not know how they work.
Bridging loans are not difficult to understand and we’re not just saying that because we live and breathe them. There are a few of points to remember if you are wondering about a bridging loan before you go any further. These are:
- Bridging loans are only for the short term. They don’t replace mortgages and other home loans!
- They attract higher interest rates than traditional home loans.
- You need to work out an exit strategy before applying for bridging finance.
5 benefits of using a bridging loan
Although those points might seem daunting, if you understand bridging loans you will see they can really benefit you and while we have many reasons for considering one, here are just five reasons why one might work for you.
1. They bridge gaps
As the name suggests, they help you bridge a gap. That means they give access to funds before you secure traditional loans. It is why they are popular for homebuyers who are waiting for mortgage lenders to approve a home loan or they can be used by businesses that are waiting for invoices to clear. Once the funds you’re waiting for are available, you can pay off the loan that bridged the gap.
2. You access money quickly
According to the latest statistics, 18% of people who applied for a bridging loan did so because they didn’t want to be part of a property chain. That was an increase on the previous year but how does that help?
Well, bridging finance lenders move faster. On average, it takes 41 days to access the money. If you compare how long it can take traditional loans, that shows how much more quickly they can help you access funds.
If you can acquire money faster, you can secure your dream home using a bridging loan until your current one sells and that means you can become a missing link in that property chain!
3. They are flexible
No matter how much you love order, financial timeliness can appear to have a life of their own, that’s when a bridging loan can help. Whether you need extra funds quickly due to renovation costs being underestimated, you’ve found the perfect home before yours sells, or you need to funds urgently, a bridging loan can work.
4. You have an edge when negotiating
Most people put their property on the market because they have found their next dream home and that means they want to move quickly. Delays due to property chains are something they can do without.
If you have a property to sell, they might be nervous about getting stuck in a chain. If you can access funds quickly, however, then you’re also in a good position to negotiate.
You could offer less than the asking price, which a vendor might accept if you can guarantee you can move quickly and, as we have seen, bridging loans can be arranged more speedily than a mortgage. Even if they won’t budge on price, they are more likely to prefer your offer if they know you’re a cash buyer! It’s a win-win!
5. It’s a short-term solution
On average, bridging loans are repaid (with interest of course) within 12 months. That’s because they are only a short-term solution. Interest rates are higher than traditional home loans due to their slightly higher risk but they aren’t meant to be taken out for years or decades. They are designed to be used when you need a bit of help and that makes them the perfect solution for many occasions.
Can a bridging loan work for me?
If you’re asking this question, you must think a bridging loan might work for your situation. As the study shows, not everyone knows much about them, however, our expert team know them inside out, so, contact our team today and become one of those who knows all about the benefits of using a bridging loan!
Remember, your current property will be used as security on your bridging loan. Your home could be at risk if you fail to keep up repayments.
